BRICS Bank Readies Debut Bond Issue for Clean Energy Projects

New Development Bank to provide up to 4 billion yuan of bonds to fund green energy projects even as the 5 economies behind the institution diverge

The BRICS-backed New Development Bank will soon issue between 3 billion yuan (HK$3.5 billion) and 4 billion yuan in bonds in China, according to the lender’s vice-president and chief financial officer Leslie Maasdorp.

The first tranche from the Shanghai-headquartered bank, a tie-up between Brazil, China, India, Russia and South Africa, will be unveiled next month and mostly be related to “green energy and clean energy”, Maasdorp said on the sidelines of the Boao Forum for Asia.

The issue comes as the five emerging economies behind the bank are diverging. Growth in China is slowing sharply, Russia and Brazil are in recession, South Africa’s tiny economy has barely expanded, and only India is showing signs of robust development.

Marcos Troyjo, director of Columbia University’s BRICLab, said in Beijing last week that “Chindia” may be outperforming “Brussia” now, but “things can shift in a very short period of time”. Evidence of that was in India’s rise from “the sick man” to “the bright spot” in the group, Troyjo said.

Maasdorp agreed, saying the short-term macroeconomic and fiscal conditions in the five countries were “relevant but not material” to the bank’s future.

The long-term political and fundamental factors for the lender were still there, he said, and demand for infrastructure financing would offer huge potential for the bank.

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The vice-president said the bank had a “20-year horizon” and there was no pressure from shareholders to see immediate dividends.

As a new institution, the New Development Bank, renamed from the BRICS Development Bank to help expand membership, would adopt a lean structure and a relatively flat organisation to ensure “speed of execution”, he said.

While the lending process for a project could be as long as 24 months at “other development institutions”, the NDB aimed to cut that to six months, Maasdorp said.

In the interest of equality, the five countries each hold 20 per cent of the voting rights, but the bank’s structure is the result of diplomatic compromise – the first president is Indian with four vice presidents each of the other members, the first chairman of the Board of Governors is a Russian, and the first chairman of the Board of Directors is a Brazilian. China hosts the head office and South Africa gets the “first regional office”.

These features set it apart from the China-led Asian Infrastructure Investment Bank, a multilateral lender with China as the single biggest shareholder.

Maasdorp said the NDB would not compete against the AIIB because they had a different geographic focus, but the BRICS bank would work closely with the AIIB as well as the China Development Bank and the Silk Road Fund.

Stanford University historian Ian Morris said institutions such as the NDB could help new economic powers such as China and India rise.

BRICS bank will be a recipe either for moral hazard or redundance

“The best chance for continuing peaceful growth of the world economy … is for the rising economies to explore new institutional arrangements that might open new opportunities while also continuing to work within the established international order,” Morris said.

Even the idea of BRICS might no longer seem very useful by the end of the decade, with China and India continuing to rise amid a “broader shift in economic power away from the West”, he said.

In the meantime, there are more urgent operational issues to address.

Maasdorp said the bank was in talks with two international rating agencies and undergoing “rigorous” due diligence to secure an international rating, after winning triple-A from China’s domestic agencies. As the bank had no track record, it had to “tell the story and persuade stakeholders that you got sufficient political support from the five countries”, he said.

It will be a hard story to tell – Brazil and Russia’s ratings are junk level and South Africa faces a downgrade. Moody’s also adjusted China’s credit rating outlook to negative in early March.

Original Article :
http://www.scmp.com/news/china/diplomacy-defence/article/1930508/brics-bank-readies-debut-bond-issue-clean-energy